In Illinois, you may incorporate a S corporation (S corp) by founding a limited liability company (LLC) or a corporation and then choosing S corp status from the IRS when applying for an EIN.
An S corporation is a tax categorization, not a company structure, according to the IRS. The S corp classification is used to lower a company’s tax burden.
In our How to Start a S Corp in Illinois tutorial, we’ll walk you through the steps.
Table of Contents
Considerations Before Forming a S Corp
You must examine the following things before founding a S corporation:
Is a S corporation the best option for your company?
S company rules and regulations
Why is an LLC the ideal structure for the S corporation tax status?
Are the tax benefits of a S corporation good for you?
Is a S Corporation the Best Business Structure for You?
S Corporation Prerequisites
The IRS requires firms that choose S corp status to:
Have no more than 100 stockholders.
Are domestic limited liability companies or corporations used?
Issue just one kind of stock.
Shareholders are either US citizens or permanent residents.
Private persons own them.
To understand more about S corporations, see our What Is a S Corporation page.
Why is an LLC the best structure for S Corporation tax status?
As entrepreneurs, we feel that incorporating a S corporation via an LLC is the best option since the benefits of founding a corporation are offset by S corp limitations. LLCs are also less difficult to manage than corporations.
Are S Corporation Tax Benefits Right for You?
You must determine if the S corp tax status is preferable to the default LLC tax status for your company. Read our LLC vs. S corp tutorial to fully grasp the tax benefits of a S corp.
How to Form a S Corp in Illinois
There are two major methods to form a S corporation:
When requesting your employee identification number, organize an LLC and obtain S corp tax status from the IRS (EIN)
By creating a company and applying to the IRS for S corp status
We do not advocate forming a company with the S corp tax status since it undermines all of the advantages of forming a corporation.
Forming an LLC and Choosing S Corp Status in Illinois
To form an LLC and elect S corp status, follow these five simple steps:
Step 1: Give Your LLC a Name
Step 2: Select a Registered Agent.
Step 3: Submit the Articles of Incorporation.
Create an Operating Agreement in Step 4
Step 5: Obtain an EIN and submit Form 2553 to elect S Corporation tax status.
Step 1: Give Your LLC a Name
The first and most significant step in forming an LLC in Illinois is deciding on a name.
Make sure your name conforms with Illinois naming regulations and is readily searched by prospective customers.
1. Follow the Illinois LLC naming guidelines:
The word “limited liability corporation” or one of its acronyms must be in your name (LLC or L.L.C.). If it is a “low-profit LLC,” it must have the letters “L3C.”
Your LLC’s name cannot include terms that may be confused with a government organization (FBI, Treasury, State Department, etc.).
Your name cannot include the words Corporation, Corp., Incorporated, Inc., Ltd., Co., Limited Partnership, or L.P.
Unless you register under an assumed name, your name must be the name under which your LLC does business.
Unless allowed by the Secretary of Financial and Professional Regulation, your name cannot include any term or phrase (e.g., trust, trustee, fiduciary) that suggests or implies that your LLC is in the business of a corporate fiduciary. If the LLC is set up to accept or execute trusts, its name must include the term “trust.”
The name may not include any words or phrases that are prohibited by any other state legislation (e.g., LLCs are not permitted to operate as banks or insurers in Illinois).
Your name must be distinct from any other current company in the state. This contains reserved names in Illinois.
2. Does the name exist in Illinois? To determine whether your selected LLC name is available, utilize the company name search on the Illinois Secretary of State website.
3. Is the URL accessible?
We suggest that you check to see whether your company’s name is accessible as a web domain. Even if you don’t intend to construct a company website right away, you may want to purchase the URL to prevent others from gaining it.
Step 2: Select an Illinois Registered Agent
Your Illinois LLC must have a registered agent.
A registered agent for your LLC will accept legal papers and tax notifications on your behalf. When you submit your LLC’s Articles of Organization, you will name your registered agent.
Many company owners opt to use the services of a registered agent. Many of these firms will incorporate your LLC for a modest price and provide free registered agent services for the first year.
Step 3: Submit the Articles of Organization for the Illinois LLC.
To properly register an LLC, the Illinois Articles of Organization are utilized.
Step 4: Draft an Operating Agreement for your LLC.
An LLC operating agreement is a legal document that defines your LLC’s ownership and member responsibilities.
Step 5: Apply for an EIN and fill out Form 2553 on the IRS website.
An EIN is a number assigned by the US Internal Revenue Service (IRS) to companies in order to identify and tax them. It is basically a business’s Social Security number.
When you apply directly with the IRS, EINs are free.
Select S Corporation Tax Status
The IRS will give a link to Form 2553, the Election by a Small Business form, during the online EIN application process.
For full assistance with completing the form, please see our Form 2553 Instructions page.